An Ally’s Advice

Hiring the right people. We all know how important it is for CEOs and business owners to build the right team. One of the questions I enjoy the most from the “Corner Office” column in the Sunday New York Times is “What qualities do you look for in new hires?” I learn a lot about that business leader and that business from that one question.

A few weeks ago, Amy Pressman, the Co-Founder and President of Medallia, a provider of customer service technology was featured. She said in part, “I listen really carefully when I interview people for whether their narrative is: ‘Life happens to me’ or ‘I make life happen’; ‘I am owning this situation’ or ‘I am a victim.'”

She says she wants to know through what lens people look at the world – through a lens of ownership or victimization. “In any given situation, you have neither zero percent nor 100 percent control. But whatever control you have, even if it’s just 5 percent, you need to make the most of it,” she said.

For more wisdom from CEOs, read my previous post “Tips on Hiring from the Corner Office.” For example, find out what the former CEO of Marriott International says are the four most important words when hiring and another CEO’s favorite three-word question.

In 1985, Guy Laliberté was a fire-eating, accordion-playing stilt walker on the streets of Quebec. Thirty years later, he is still walking tall but now with a lot of more money. Estimated to be worth around $2.6 billion, the founder of Cirque du Soleil recently announced he sold a majority interest in the company to private equity firm TPG Capital for an undisclosed but estimated price of around $1.5 billion.

One of the reasons he cited for selling a majority in the business is that he didn’t want to pass it along to his five children. They range in age from 7 to 18.

“They have their dreams and as a father I have made the commitment to support them as they chase them,” he said in an article on CBSnews.com. “I don’t really believe in the idea of the second generation of entrepreneurs. From the outset, I didn’t want to put the pressure of running the circus on their shoulders.”

I can’t say I agree with him, as I do believe in second-generation entrepreneurs. In certain circumstances. In my career as the turnaround authority, I have seen many situations where a company would have fared better if the founder had not passed along his company to the second generation.

While the founders of a company have often been fueled by passion and the thrill of growing a business from just an idea, that passion is often not shared by the second generation. And sometimes they just haven’t developed the drive and work ethic to keep a successful business growing.

There are so many factors to consider when contemplating handing down your business to your children. The same is true with any succession plan, but the situation with family businesses can be complicated by assumptions and expectations of the founders.

Most family business owners assume their company will still be in family control in five years – 88 percent, according to the Family Business Institute. But only about 30 percent of family businesses make it to the second generation. That number drops to 12 percent for the third generation. By the fourth? Only about 3 percent make it this far.

There are two questions I suggest you ask yourself as a starting point when you are considering turning over your business to the second generation, now or in the future.

Do your children have any interest or desire to work in the business?

You’d be surprised how often this simple question is never asked. I’ve seen business owners just assume that their children love their business as much as they do and of course, they want to take it over. But a discussion with those children tells a different story.

It sometimes comes as a complete surprise that our children don’t share our passions. And how can they not be thrilled to have a company that you worked so hard for be handed to them?

Yet that is often the case. While it may mystify you and break your heart, if your children don’t share your passion or show much interest in your business, your company will suffer for it and it’s best to pass it along or sell it to someone who cares.

One note on when you ask this question, however. In Guy’s case, his children are too young to know their life’s passion. And often kids go to college with no concept of wanting to join mom or dad’s company. A few years in the real world can often change their mind. Or they may find a place in your company that they can care deeply about.

Do your children have the necessary qualities to grow your business?

It’s tough to be objective about our own children. But taking a good look at their strengths, weaknesses and potential is essential when making this assessment.

Does you son have the leadership ability to run the company? Or does your daughter have the skill set to be in senior management?

If they don’t have the education or skills yet to take over, do they have the potential to learn what they need to know?

Not long ago his caddy, Michael Greller, was teaching square roots to pre-teens as a 6th-grade math teacher. He had done a little caddying on the side and liked being able to use real-world examples of math for his students. He and Jordan met when Jordan needed a caddie for the 2011 U.S. Junior Amateur. Michael knew the course and was recommended to Jordan by a friend.

When Jordan turned pro in late 2012, there was no shortage of more experience caddies who wanted to work with him. But he wanted a caddie who could travel with him all year, no matter how well he was doing. So Michael left the classroom for good and became Jordan’s caddie. Just a little over two years later, Jordan put on the famous green jacket as the winner of the 2015 Masters.

What struck me about the article was this observation from the author, Brian Costa. “When Spieth double-bogeyed the 17th hole Saturday, Greller didn’t say much as they walked to the 18th tee box. He mostly just listened.”

As Michael said, “You don’t want to overanalyze or make it harder than it is. I just try to be a calming influence on him.”

I thought about that in the context of my work as the Turnaround Authority. I deal with a lot of people who are under a great deal of stress. When a financial institution or a company hires me, the situation is a dire one. People may be on the verge of losing large sums of money, defaulting on their loans or ever losing their entire business.

A lot of what I do in the beginning is listen. And listen some more. I need to gain a clear understanding of what is really happening in the company and how it got to where it is.

And I definitely don’t want to make it harder than it is, as Michael said. A large part of my job is to break down extremely complicated situations so they are manageable and can be dealt with in an efficient and productive way.

Michael understands that part of his function is to be a calming influence. That’s one of the things my clients have often said about me, and actually, I believe to be a crucial part of my job. I need to calm people down because nothing is going to be accomplished when people are in a highly emotional state.

With his quote, he cited two of the most critical skills involved in being a successful turnaround guy. To paraphrase the famous phrase with variations being found everywhere, “Keep Calm and Listen.”

In a recent episode of the TV show “Mad Men” one of the account execs, Ken, was fired by the ad agency’s new owner, McCann Erickson, and ordered to turn over his accounts to Pete, another account exec.

The next day Ken returns to the agency to inform them he has a new job. As the new head of advertising for Dow, one of the agency’s largest clients. Ken is now his former agency’s client.

Pete and Roger immediately assume he will fire their agency because he was poorly treated. But he says no. He’ll actually be seeing more of them but he will be a “very hard client to please.”

Ken opted not to fire his former boss, but instead stick around and make him jump through hoops for him as the client. If one of your employees had the chance, do you think you would be fired, or made miserable in your present position?

Psychologist and best-selling author Michelle McQuaid conducted the survey or more than 1,000 workers from different generations, locations and professions. It seems 65 percent of the people polled would be happier if they could fire their boss than if they got a raise.

Many felt the extra money isn’t worth the anxiety, stress and low morale caused by working for a bad boss. And let’s talk about the effect on productivity. According to McQuaid, people who view their bosses negatively took 15 more sick days and slowed down their work.

“The current situation in the workplace is taking an incredible personal toll on employees—and for organizations it is costing $360 billion a year in lost productivity.”

The survey showed that 60 percent of employees said they would do a better job if they got along better with their boss, with 58 percent saying they would be more successful.

If you’re concerned about how you measure up as a boss and what your employees would say about you, you may want to take this quiz: How to Know If You’re a Bad Boss.

It’s a list of 15 questions and some may be revealing to you. Here are a few examples:

If I had to switch places for a week with one of my employees, I would:

Enjoy the job.

Probably not enjoy the job but could be pleasantly surprised.

Slit my throat.

When there’s a crisis in the company…

I share the news with my employees as soon as I’m certain there really is a problem.

I don’t want to cause a panic, so I keep my employees in the dark as long as possible.

Once the electricity’s been turned off and it’s actually dark, I still think it’s none of their business how I run my business.

As the Turnaround Authority, I’ve talked with thousands of people at dozens of companies and asked how they felt about the company and about their boss during my initial assessment of the situation at the company. Sad to say, but the results of this survey don’t surprise me much.

Bad bosses cost your company money in lost productivity, turnover and low morale. Start at the top and make sure you aren’t one of them.

Although with a continued high percentage of bad bosses, I’ll never run out of clients as the Turnaround Authority.

Gallup released its latest State of the American Manager Report this week.* The renowned research and consulting company did its homework. The report is based on four decades of research and a study of 2.5 million manager-led teams in 195 countries. These folks analyzed the engagement of 27 million employees. So I tend to believe the results. And they are not pretty.

Although as the Turnaround Authority, I do get more consulting assignments related to the failings of managers as pointed out in this report. But that doesn’t make me happy about the state of management in our country.

Today I’ll share the most important findings of the report, and in future blogs, will delve deeper into some of these findings.

Manager talent is rare, and organizations have a hard time finding it

Wow. Research showed that the majority of managers are not suited to their role; 82 percent don’t have the high talent required. That talent naturally exists in just 1 in 10 people, but two in 10 can be trained to be successful managers.

The study listed five talents of great managers. They motivate their employees, make unbiased decisions for the good of the team and the company, create a culture of accountability, build trusting relationships and assert themselves to overcome obstacles.

Talent is the most powerful predictor of performance

If you hire a talented manager, you can expect a 48 percent increase in profitability. That’s huge.

These managers are more engaged, function as brand ambassadors for the company and focus more on employees’ strengths than weaknesses.

Managers have the greatest impact on engagement

I don’t know how research companies figure out such things, but Gallup research found that managers who are not engaged in their jobs or who are actively disengaged, cost the U.S. economy $319 billion to $398 billion annually. Or roughly the GNP of our entire country in 1953.

And the percentages of managers who are not engaged are high: 51 percent are not engaged, 14 percent are actively disengaged for a total of 65 percent.

Equally disturbing is the finding that at some point in their career, one in two employees have left their job to get away from their manager.

• Female managers have an engagement advantage

It’s true guys, according to Gallup. Female managers are more likely to be engaged than male managers, at 41 percent versus 35.

For the highest percentage of engaged employees, look for females working for a female manager. They will have a 35 percent engagement rate. Male employees working for male managers had the lowest rate, at just 25 percent.

Specific behaviors can help managers increase employee engagement

I suppose this is a glimmer of good news. At this point in reviewing the report, I felt I needed it.

Two-thirds of employees who strongly agree that their manager helps them set work priorities and goals are engaged. And more than half of employees who strongly agree that their manager is open and approachable are engaged.

I do agree that managers can adapt certain behaviors that can engage employees in their companies. For tips of keeping your employees engaged, see my previous column, “Top Tips for Keeping Employees Engaged.”

Stay tuned in the coming weeks as I talk more about what the findings of the report are and what you can do about it in your company.

It’s a man’s world. At least in the board rooms of Fortune 500 companies, where women continue a pattern of holding less than 17 percent of corporate board seats. Compare that to other countries, some of which are so concerned about the lack of females on boards that they have set quotas. These countries have set quotas of 40 percent and have come a long way toward meeting them.

The top five countries in terms of percentage of female representation are:

Norway: 35.5

Finland: 29.9

France: 29.7

Sweden: 28.8

Belgium: 23.4

Germany hasn’t fared much better than the U.S., with just 18.5 percent of female board members. However, it recently introduced a quota of 30 percent by 2016.

While mandating quotas for U.S. companies may not be the answer, it’s time for companies to take a good look at their numbers and what having more women on the board could mean for them.

Here are three reasons you should consider adding more women to your board.

Having women on your board is good for your bottom line

A study done by Catalyst, a non-profit organization for women in business, found that Fortune 500 companies in the top quarter of number of female board members outperformed those in the lowest quarter with a 16 percent higher return on sales and 26 percent increase on invested capital.

These numbers increased to 84 percent higher return on sales and 60 percent increase on invested capital for companies with sustained high representation of women on their boards.

A study on decision-making was conducted by Chris Bart, professor of strategic management at the DeGroote School of Business at McMaster University, and Gregory McQueen, a McMaster graduate and senior executive associate dean at A.T. Still University’s School of Osteopathic Medicine in Arizona, and published in the International Journal of Business Governance and Ethics.

For their study they surveyed 600 board directors on how they made decisions. The results showed that while men prefer to make decisions following rules and tradition, women are more likely to consider the rights of others and to take a collaborative approach to decision-making, which translated into better performance for their companies.

Having women on board can decrease your company’s chances of going bankrupt

A study done by Leeds University Business School found that having just one woman on your board could cut your risk of bankruptcy by 20 percent. Having two or three members lowered your chances even more.

The study involved 17,000 companies in the UK that went insolvent in 2008. The results were published in an article in The Times with the title “Higher Heels, Lower Risk: Why Women on the Board Help a Company Through Recession.” Unfortunately, this one didn’t seem to be available online as I was intrigued to read more.

Having women on your board can result in less fraud, corruption and scandal

MSCI, Inc., a provider of investment decision support tools, looked at the presence of women on the boards of thousands of companies and their corresponding propensity for scandals and tensions with shareholders. The results showed “a clear pattern between having higher than mandated percentages of women on boards and fewer governance-related controversies.”

The research is clear. Having a diverse board can benefit your company in many ways.

Yet, U.S. companies have been slow to respond. In fact, the article points out that male board members named John, Robert, James or William outnumber all women on boards.

Want to improve the performance of your company? Get a woman on board.

Last week’s post, More Red Flags of Fraud, discussed how management should be trained to always be on the lookout for behavioral changes in employees that may be red flags for fraud. As the column pointed out, 92 percent of the people who committed fraud exhibited certain behavioral traits. Recognizing those can be the key to detecting and preventing fraud.

Being aware of and dealing with fraud is crucial for any size business, but particularly for small businesses for three reasons:

They are disproportionately victimized by fraud

They are less likely to have fraud protection measures in place

There tends to be a greater level of trust in small offices

That’s according to the Association of Certified Fraud Examiners (AFCE). Small businesses, defined as those with fewer than 100 employees, suffered 28.8 percent of all fraud cases, with an average median loss of $154,000.

The average median loss was higher for the largest entities, defined as more than 10,000 employees, at $160,000. But obviously that is a much smaller fraction of overall revenue than for smaller companies.

So you’re a small business and can’t afford the most expensive fraud detection systems. But there are plenty of measures you can enact to cut down potential for fraud in your company. Here are a few suggestions.

Select the right employees. Always check references and criminal records. You may want to conduct credit checks to make sure your potential employee is not in dire financial straits, which can set the stage for him to consider committing fraud.

Separate accounting duties. Many small businesses delegate all the financial dealings to one person, who opens the mail, writes checks, reconciles the accounts and generates invoices. This makes a business vulnerable. If you don’t have the staff to completely separate duties, then have some of the responsibility rotate around the office if possible.

Always prosecute theft and fraud. Make it clear that you have a no-tolerance policy towards any type of theft or fraud and you will prosecute any and all people involved. This is easy to include in an employee manual. “If you steal, you will be prosecuted to the fullest extent of the law.” If the policy is equally applied to all employees, no one, even in a small office, should feel mistrusted.

Conduct surprise audits. Ask to see the books and review invoices and accounts payable. Call a few of the businesses to make sure they are legit and that your company is doing business with them. Or call your CPA in for an unannounced mini audit to uncover any problems.

Have your controller, bookkeeper or CFO take off two consecutive weeks each year. I recommend this measure to all my clients as a way to prevent and detect fraud. In their absence, do their jobs. Open the mail, review deposits, correspond with vendors.

Purchase the ACFE’s Small Business Fraud Prevention Manual. At $59, it’s money well spent. The manual goes into detail on how employees steal. It also gives prevention tips and how to deal with dishonest employees.